Often found at theaters and museums, Kwon Mee-yoo has covered a wide range of cultural fields from K-pop and dramas to theater and fine art for over a decade. Now as K-Culture Desk editor, she tries to connect Korean culture with global readers through fresh perspectives.
Card firms charge outrageous interest rates
By Kwon Mee-yoo
Credit card firms are imposing what critics say are outrageous interest rates of over 20 percent for customers who need fast cash.
According to the Credit Finance Association (CREFIA), the high rates were applied to more than 50 percent of those wanting cash advances.
About 81 percent of Samsung Card customers and 74 percent of Shinhan Card clients have to pay over 20 percent in interest. Around 10 percent of all credit card customers were in a group who had to pay interest over 28 percent.
The statistics imply that a normal office worker with a secure job could be in the group paying interest of over 20 percent for an emergency cash advance.
Last year, Shinhan Card, KB Kookmin Card, Hyundai Card, Samsung Card, Hana SK Card and Lotte Card netted a combined profit of 2.1 trillion won and most of it came from loans and cash advances.
Approved credit card loans were about 12 trillion won in 2008, but jumped to 15.8 trillion won last year.
Civic organizations claim that such high interest rates burden ordinary people.
"The rates are too high for established financial institutions," Cho Nam-hee, secretary-general of the Korea Finance Consumer Federation, said.
Cho said it is excessive considering most credit card firms use corporate bonds as a key financing method with yield rates around 5-6 percent.
"Even adding losses from bad debts and various costs to maintain the services, charging interest at over 20 percent is too much," Cho said. “It is like people with poor credit ratings paying for the marketing and services of credit card firms.”
Credit card companies claim that they offer unsecured loans and the high rates are inevitable to make up for high loss rates.
The card industry is also worried about the demand to cut the commission paid by businesses. Currently, the average commission paid at points-of-sales is 1.99 percent and if the rate drops, credit card firms expect about yearly losses of 500 billion won. If the firms see further deficits from a lack of commission, they might try to cover the loss by charging even more interest for loans and cash advances.